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Home > Speeches and Presentations > Speeches and Presentations 2007 > Government-industry relationships: more critical now than ever before

Government-industry relationships: more critical now than ever before

Presented by
Gaétan Caron
Vice-Chair
National Energy Board

Alaska Oil and Gas Symposium

17 September 2007

Government-industry relationships: more critical now than ever before

Good morning, everyone.

I was very please. to receive an invitation from the organizers of this very important event. I understand that the goal of this symposium is to give you the critical information you need to prepare for the future in the Alaska oil and gas sector. I believe that there is critical information that the National Energy Board of Canada can bring to your planning and that there is much we can learn from you, as partners in responsible development. It is in that spirit of cooperation that I prepared for this presentation.

With this in mind, I must say that today's topic for discussion is one that interests me greatly. the importance of government - industry relationships.

One of the things that struck me as I was thinking about today is how strongly this session topic is related to the Vision of the National Energy Board. Our Vision says:

The NEB is an active, effective and knowledgeable partner in the responsible development of Canada's energy sector for the benefit of Canadians.

From my perspective, the Board's Vision speaks to our belief that partnerships between industry, the public, other government agencies and the NEB are part of providing our citizens and our society with efficient and effective regulation of the oil and gas industry.

Based on what I read in the newspaper and the trade press, and what representatives of the oil and gas sector are saying, there are strong indications that, one day, we will be working on a transportation option to bring gas from Alaska, through Canada, and on to southern markets. At that time, what Canada and the U.S. will need is a coherent process that is well understood, provides clear answers, and sticks to a sensible and transparent timeframe. Today, I will tell you why I believe that Canada is ready for any scenario to transport gas from Alaska through Canada. You will see that we have been building the capacity and expertise necessary for a project like this for many years.

Strong Relationships

Before I address the importance of government - industry relations, I'd like to touch upon the importance of an even higher level relationship, namely, the relationship between our two great nations and, as part of that, our relationship with Alaska.

Canada and the United States have a lot in common; so too do the Canadian North and Alaska. Our economies depend a great deal on the prosperity of the other. Our environmental goals are inter-dependent. Our populations enjoy a comparable standard of living. The key values of our respective societies may have their own characteristics. Americans are in pursuit of happiness, while Canadians pursue peace, order and good government. At the same time, both nations are strongly attached to key principles of democracy and to the rule of law. We rely on the free operation of market forces, whenever possible, to achieve collective outcomes.

This inter-dependency has a particular meaning when it comes to energy, notably oil and gas. We export 60% of our natural gas to the United States. Canadian supplies meet 16% of American demand for natural gas. Canada was the leading exporter of crude oil to the U.S. in 2006, ahead of both Mexico and Saudi Arabia. Canada has the second largest oil reserves in the world.

Alaska and the Canadian North also have many treasures in common: first and foremost of these the land and the people living on this land. I have visited many communities and pristine places in Yukon and the Northwest Territories over the last seven years while preparing for upcoming Northern pipeline projects. I have not seen as much of Alaska, but I do recall driving from Whitehorse to Skagway a few years ago and I remember the feeling of awe that came over me at the privilege of seeing the land and meeting the people of Alaska. I look forward to learning a whole lot more about this great state.

Many of the people living in the Canadian North have strong ties to their cousins in Alaska. For many peoples, in particular, the Canada / Alaska border is not a lot more than a line on the map, since they share values, traditional practices, and a common ancestry, and they maintain ongoing relationships.

I am offering these thoughts to demonstrate how strongly I believe that the Canadian North and Alaska share, and will continue to share, much in common.

Exports of Canadian Crude to the U.S.

As you can see from this graph, Canada plays a key role in providing the U.S. with crude oil.

Canada's oil reserves

This graph shows that Canada is in a position of strength in terms of its oil reserves.

Memorandum of Understanding

Regulatory collaboration is a concrete manifestation of the interdependencies between Canada and the U.S.

On the screen in front of you, in full length, is the Memorandum of Understanding between the NEB and the FERC, signed in Halifax, Nova Scotia in May 2004. The signatories were Ken Vollman and Pat Wood, the previous Chairs of the two organizations. We are still completely committed to the collaboration indicated in this MOU.

I would like to draw your attention to Clauses 4 and 5, which are particularly important. These clauses recognize that appropriate coordination could promote the public interest through increased efficiency, coordinated action on significant energy infrastructure projects, and cost savings to both the public and regulated entities.

The MOU builds on decades of regular meetings between senior staff at the FERC and the NEB. In fact, the Chairs of FERC and the NEB have been meeting every year through their participation at the annual conference of the Canadian Association of Members of Public Utilities Tribunals, or CAMPUT. the Canadian version of NARUC. I fully expect this fine tradition to continue when CAMPUT holds its next annual conference in Banff in April 2008.

The collaboration goes back to the mid-80's, when Dick O'Neill was the Director of the Office of Producer and Pipeline Regulation, and I was the Project Manager of a hearing on a TransCanada PipeLines expansion that was proposed in Canada to supply the then proposed Iroquois Pipeline project.

Where Canadian natural gas goes

Canadian natural gas exports to the U.S. for 2006 were about 9.6 Bcf/d. The U.S. Central/Midwest and Northeast regions are Canada's largest export markets.

The Foothills pipeline is one of the pipelines exporting natural gas to the U.S.. Foothills was approved under the Northern Pipeline Act (NPA) to carry natural gas from Alaska through Canada. It was felt at the time of construction, in the early 80's, that pre-building part of the Northern Pipeline to export Canadian natural gas would be in the public interest. Every day, more than 3 Bcf/d are exported to the U.S. through the pre-build.

Who the NEB is

Let us go back to the theme of this panel. the importance of government - industry relationships.

The NEB, as a regulatory agency, is an instrument of public policy. Elected officials and the government of the day make policy. There is a key set of relationships that must occur between the government, industry, other stakeholders and the public, as policies are shaped.

A regulator implements some of these policies, when they are assigned to us by the government. A regulator also needs to build effective relationships with industry, stakeholders and the public. These relationships are guided by our values as a regulator. transparency, fairness, objectivity, and a commitment to the fundamental principles of natural justice. A regulator is, in most cases, independent from the government, in terms of the decisions it takes on specific applications - this is our case. At the same time, in exercising this independence, a regulator is expected to be mindful of public policies. An independent regulator must also be accountable. In the case of the NEB, we report to Parliament, through the Minister of Natural Resources.

Given these attributes, the diverse relationships in which a regulator engages are very supportive o. needs of industry and other stakeholders for predictability and stability in decision-making processes.

We achieve this with a relatively modest organization, in terms of overall size. There are about 300 people working at the Board. Our budget is approximately $US 32 million. We are headquartered in Calgary, Alberta, which means we travel a lot throughout the country for hearings and to meet with the people of Canada.

Our impact

We are in the business of regulating pipeline facilities, their tolls and tariffs, international power lines, and the exports and imports of oil, gas and electricity. We also monitor the market place and inform Canadians on the state of energy markets and their direction. When regulating facilities, we take a life-cycle, cradle-to-grave approach, that is. we process applications for their approval, and we remain involved from construction, operation through abandonment. We are a small scale combination of the FERC, the Energy Information Administration (EIA) and the Pipeline and Hazardous Materials Safety Administration (PHMSA)

The first question this panel is being asked to address is:

How are government-industry relationships impacting oil and gas development?

My answer is. fundamentally. Many aspects of infrastructure development, notably pipelines, must b. gauged against the public interest.

At the NEB, we define the public interest as:

“…a balance of economic, environmental, and social interests that changes as society's values and preferences evolve over time. As a regulator, the Board must estimate the overall public good a project may create and its potential negative aspects, weight its various impacts, and make a decision.”

The manner in which regulator-industry relations are managed has a significant effect on the investment climate. This climate is something on which we have an influence. We are fully aware of that. We are also aware of the environmental and social dimensions of our task. A successful regulator is one wh. appropriately balances these dimensions. We strive to be that regulator in everything we do.

Enhancing relationships

The second question we have been asked to address is:

What opportunities exist to enhance these relationships to the benefit of all stakeholders?

My answer is. plenty.

Later in my presentation, I will provide you with examples of the work we have done or are doing jointly with Canadian industry associations, notably the Canadian Energy Pipeline Association (CEPA), the Canadian Association of Petroleum Producers (CAPP), and the Canadian Gas Association (CGA).

The main point to make here is that ongoing enhancement of relationships with all stakeholders is part and parcel of a day's work for a regulator and for every person working in a regulatory agency. The work is never finished. What I am driving for here is at least continual improvement, and, occasionally, breakthroughs.

Effective regulation

The third question on your program is:

When does "industry know best" and what is the government's role in communicating this to its constituents?

This question is related to my earlier point on partnerships. Why do we seek partnerships. To answer this, we need to ask ourselves. what is effective regulation?

The NEB's philosophy on this topic is to take a “goal-oriented” and risk-based approach. We do not want to focus our work on policing industry for compliance with legal requirements. This means we work with our stakeholders, in particular with industry, to set and achieve economic, environmental and social outcomes for oil and gas development and transportation. This approach allows us to focus our limited resources where they matter the most - on identifying, avoiding and mitigating high risk issues that will have the greatest effect on the public and industry. This approach also allows us to leverage opportunities for improved outcomes.

It is, in fact, the regulatory policy of the Canadian government to focus on desired end results and give regulated parties flexibility in how they achieve these results. The NEB sees itself as leading by example in this area. We have come a long way in the journey, but we know the road stretches on before us.

Goal-oriented regulation

The fourth question in the program is:

Which government programs have been developed to foster and enhance the relationship between government and industry?

This is a broad question and I will borrow an example from the NEB to explain more specifically what we have been doing to become a goal-oriented organization.

In 1999, the NEB adopted a goal-oriented approach to regulation. Goal oriented regulation is a mix of the best from both goal-based and prescriptive regulation. In many circumstances, a company has flexibility in how to meet a goal. We specify the desired end result. A company chooses how it will achieve the desired end result. It is that simple. A company may then select an approach that is aligned with the location and type of facility they are proposing, the social and environmental context in which they operate, and their organizational structure and culture.

For this approach to work, we have to cultivate relationships with the companies we regulate and with our key stakeholders such as landowners. Trust is essential for this approach to work. The NEB must trust that companies buy into the goal and that they will work toward it. In turn, companies must trust that the NEB will not move the ultimate target, or, just as bad, retro-actively prescribe the means of achieving the goal.

Trust is achieved by working together as partners in a cooperative atmosphere, rather than viewing regulation as an opportunity for conflict. This is not always easy.

The building of trust is a process that started in the past and which is never finished. I view trust building as the most rewarding work we have in front of us.

Communication and consultation

Our next question is:

What is the role of communications in establishing, improving and advocating government-industry relations?

This is again a broad question and I will again address it with an example of what we are doing at the NEB. Much of the information flow about energy projects is under the purview of the industry. Excellent communication between a project proponent and the public can greatly improve a proponent's situation when coming before the NEB and other government agencies. Our Filing Manual for applications is very clear about the information a company must file when they submit an application with us. A key area in this respect is public consultation.

With respect to public consultation, we require the following information within an application:

principles and goals of the consultation program;
design details of the consultation program; and
the outcome of implementation of consultation.

We also have Pre-Application Meetings Guidance Notes

My key point here is that it is crucial for communications to begin way before a project is filed. We also encourage prospective applicants to meet with NEB staff to make sure our filing manual is well understood. It is also very important for the company to consult publicly about its application before it is filed. An investment in good communication at this stage will most certainly pay dividends in the form of an efficient review and public hearing process. Prospective intervenors are also welcome to meet with our staff, before a project is filed, to better understand our processes. The same principles apply, of course, to submissions made to other government agencies involved in the assessment of energy projects.

A final element I will outline here is the importance for a regulator to communicate with other government agencies that may play a role in the project review. The Canadia. government made a clear commitment in its 2007 budget to implement a more streamlined and accountable environmental assessment process. Part of that commitment is to create a Major Projects Management Office whose goal will be to streamline the review of large natural resource projects while maintaining or enhancing our regulatory standards is part of that commitment. I am very confident that Canada is well positioned to make significant progress in this area, soon.

Shared responsibilities

The penultimate question for this session is:

What roles and responsibilities are shared between both groups in developing natural resources?

Let me say very clearly that I strongly agree that the responsible development of natural resources is a shared responsibility. I have said earlier that the NEB sees itself as an active, effective and knowledgeable partner in the responsible development of Canada's energy sector for the benefit of Canadians. Industry also has a key role to play in this partnership, notably, to submit projects for review that have commercial substance. That includes, for a pipeline project:

evidence of supply and market.
evidence that there will be committed shippers - this is often achieved by the filing of precedent agreements to transportation contracts for service on a pipelin.
evidence of economic feasibilit.
willingness to squarely address the public interest issues that come hand-in-hand with the proposed development of natural resources, notably the environmental and socio-economic dimensions.

Examples of partnerships

I want to give you a few concrete examples of where we have partnered with industry to achieve outstanding results. My examples will focus on activities that follow the project approval stage, during construction or operation, illustrating how we promote public safety and environmental excellence.

One of the main benefits of partnerships, in our view, is the rich opportunity for learning and sharing best practices. We have learned a lot about how companies have risen to the challenge of a goal-oriented approach to regulation to achieve their goals in regions across Canada.

Emergency Response

An emergency response to an oil spill and the subsequent clean-up is an excellent example of where our partnerships with the companies we regulate, and with other federal, provincial and local regulators, result in positive outcomes for public safety and the environment.

Recently, a contractor doing construction work on a road struck an oil pipeline we regulate in Burnaby, B.C. Approx. 35 m³ (1500 barrels) of heavy synthetic crude oil was released into a heavily populated residential area. The incident and the emergency response made national headlines on Canadian TV and in national newspapers for several days.

The NEB arrived at the incident scene the same day and began coordinating the response between the people at Kinder Morgan Canada, the owner of the line, and other government agencies.

The NEB's role was to be the “one-window” coordinating the input and actions of all other government agencies, consulting with other stakeholders, and providing input into Kinder Morgan's clean-up efforts, leaving the company to focus on the actual clean-up activities.

This slide shows pictures of the clean-up efforts.

The cooperative approach has led to an effective clean-up effort, engaged stakeholders, and has further solidified an already positive relationship between the NEB and Kinder Morgan. The investigation into the causes and contributing factors is proceeding separately and independently, and is being led by the Transportation Safety Board of Canada.

Best practices: damage prevention

This leads me to my second example of successful partnerships with regulated companies, and this example relates to damage prevention. Although we have been successful in cleaning up after an incident, it is even better to prevent incidents from occurring in the first place!

Our goal is to work with industry and regional regulators across Canada to raise the public's awareness of pipeline facilities in their communities to prevent third-party damage. Partnerships with industry have been fruitful and we are leveraging these relationships to develop best practices for construction and excavation around underground utilities, contractor training, right-of-way identification, and public awareness and outreach techniques. Much of our current work is based on the best practices that have already been developed in the U.S.

Our challenge is to ensure that best practices are developed and consistently implemented from region to region across Canada.

This is a good example of a situation where we share the same goal as the company - we both want to protect the facility from damage that could result in a threat to public safety or to the environment.

Best practices: environment

Ensuring that the construction and operation of pipelines facilities have minimal adverse effects on the environment is a key goal of the NEB. To achieve this goal, the NEB has participated in the development of best practices related to environmental protection and has learned a lot along the way about the best practices for construction and operation in sensitive areas.

For example, the NEB has recently participated in the development of best practices for seismic activities and for drilling waste management north of 60. In addition, since the late 1990s, the NEB has been involved in developing and improving the best practices for watercourse crossings with the Canadian Association of Petroleum Producers (CAPP), the Canadian Energy Pipeline Association (CEPA), the Canadian Gas Association (CGA) and Fisheries and Oceans Canada (DFO). The third edition of these best practices was released in September 2005.

Another example is our work with the Canadian Pipeline Environment Committee (CPEC), a multi-stakeholder group of industry, and government representatives, currently chaired by NEB staff. This group is focused on the sound environmental management of pipelines in Canada. One of the outcomes of the committee is a guidance document: The Pipeline Industry and the Migratory Birds Convention Act.

Facilitating everybody's work

The last question we need to address is:

How could improved relations facilitate our work overall?

My answer is … very meaningfully!!!

The answer of course is in the question. Improved relations suggest that each participant in the regulatory process recognizes the importance of clear communication, leadership, and effective and meaningful engagement of all stakeholders. This needs to start before projects are submitted for consideration by governments and regulators.

Meanwhile, you can count on the NEB as a regulator with a track record of predictable and reliable business processes and as an agency with an insatiable thirst for regulatory process improvements, to continue its goal-oriented pursuit of the public interest in the responsible development of natural resources and the related infrastructure.

What about Alaska gas?

You may be asking yourself: how will the NEB approach future filings related to the Alaska Highwa. project.

First, I must say that we do not know what will be filed.

What I do know is that the NEB and Canada will be ready for whatever is filed. We have the means, and the resolve, to put in place an efficient and effective review for the Canadian portion of the proposed pipeline. Full consideration will be given to all interests if and when a pipeline application is brought forward.

And we are not just beginning to prepare for this project. Since at least 2001, we have been engaging people with an interest in the regulatory process that would need to be in place in Canada for the Alaska Highway Pipeline Project. I was an NEB staff member when I participated in discussions in June 2001 between a group of government officials in Whitehorse, Yukon.

Since 2001, meetings of all sorts involving a broad range of government officials, agencies and boards, industry and Aboriginal peoples have taken place. Relationships have been built and will continue to be built. What has already been built will be very helpful, irrespective of what is filed, and how it is filed. This is a sound investment in the work ahead that must be carried out in order to land on a specific process. In my experience, the early development of relationships, way before a project is filed, is the most important task to carry out when designing a specific regulatory process for projects of significance. We are already ahead of the game in that field.

Therefore, it is with a high degree of confidence that I say: we are ready!

Contact Us...

If you are interested in knowing more about the topics I discussed today, I encourage you to:

visit our website
drop by our library in Calgary
call us toll-free.

I will also be pleased to answer any question you may have at the end of this session, or later informally during this conference.